Latin America & the Caribbean

Costa Rica Advised To Make Growth More Inclusive

PARIS (IDN) – Costa Rica, renowned for its ecological footprint, forest protection and abundant biodiversity, has made impressive economic and social progress in recent years, with robust economic growth facilitating near-universal access to education, health care and pensions.

But the Central American country is faced with a fundamental challenge: its fiscal imbalance, which continues to remain the major threat to the country’s economic stability, growth and living standards, says a new report from the Organisation for Economic Co-operation and Development (OECD).

Restoring the sustainability of public finances and implementing policies to fight poverty and reduce inequality will be crucial for continuing convergence toward OECD living standards and ensuring that all Costa Ricans share the benefits of growth,

The latest OECD Economic Survey of Costa Rica details the factors behind the strong socio-economic achievements of the past decades as well as the challenges remaining to ensure growth is both sustainable and more inclusive. It projects growth of around 3.7% for the 2018-19 period and lays out an agenda for achieving further transformation and greater convergence with OECD countries.

The Survey, presented in San José by OECD Secretary-General Ángel Gurría and Costa Rican Foreign Trade Minister Alexander Mora, on April 17 identifies policy priority areas for future action, led by a call to put public finances on a sounder footing. Improving the business environment and enacting growth-enhancing reforms to boost productivity, create jobs, reduce labour market informality and ensure that the fruits of growth are spread more widely are also essential.

“Costa Rica is a development success story, demonstrating how countries can achieve high levels of well-being and robust growth that benefit citizens while protecting the environment,” Gurría said.

“Since the OECD accession process kick-started in 2015, Costa Rica has accelerated efforts to enact policy reforms that will help it converge toward OECD best practices, and this process will continue. The momentum needs to be sustained and bold actions taken in order to continue to pave the way to a better and brighter future,” he added. Read the full speech.

The Survey says that sustained economic progress will hinge on restoring the sustainability of public finances, which remain a major threat to economic stability, growth and living standards. With deficits rising, debt payments soaring and the ratio of public debt to GDP doubling over the past nine years, the Survey recommends that Costa Rica implement a comprehensive fiscal package, with measures to curb expenditures and raise tax revenues.

Proposed legislation to strengthen public finances recently fast-tracked by the Legislative Assembly should be swiftly approved. A revamped fiscal rule in the bill is expected to be more effective in containing spending increases, but more needs to be done to control public spending, including substantial reductions to mandatory earmarking in the budgetary process, the Survey said. In the medium term, more action will also be needed to bring the debt-to-GDP ratio to more prudent levels and create more fiscal space to address contingencies.

Poverty, income inequality and gender gaps in Costa Rica are low by Latin American standards, but high when compared to OECD levels, driven by stubbornly high informality, low labour participation rates and high unemployment, particularly among women and youth.

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